State regulators approve increase to NW Natural customer rates

The
three-member commission approved an agreement that increases NW Natural’s
natural gas annual revenues by $5.1 million (or 7.8%)—less than the $8.3 million
(or 12.6%) the company originally requested. The general rate increase is the
first for the company in more than 10 years.

The
commission’s approval of the agreement also allows approximately $2.5 million
in over collected taxes to go back to customers in one year, a refund that
coincides with the commission’s direction to utilities in response to the 2017 Tax Cuts and Jobs Act. Approximately $2.1
million will be returned as a one-time rebate to customers spread over a year,
while the remaining $400,000 will be returned to customers as the first annual
installment of an IRS-mandated schedule to return approximately $14.6 million
in additional deferred tax benefits.

Under
the rates approved today, including the $2.5 million tax refund, the average
residential customer using 57 therms a month would pay $1.81 more, for an
average monthly bill of $50.74.

These
changes take effect Nov. 1.

The
commission also authorized NW Natural to earn a 7.16% overall rate of return,
instead of the 7.63% rate of return the company originally requested.

In
today’s order, Chair David Danner and Commissioner Ann Rendahl rejected a
second partial settlement that would have allowed the company to establish a
five-year “decoupling” mechanism in order to recover costs associated with new
customer hook-ups. Decoupling is a mechanism that removes the company’s
financial disincentive to invest in conservation and energy efficiency by
ensuring that the company recovers differences in revenue due to changes in
customer usage. Decoupling allows a utility to recover fixed costs separately
from the volume of its gas sales, so that company revenue is determined on a
per-customer basis.

The
commission found, given the company’s significant annual growth in new
customers, that the proposed decoupling mechanism resulted primarily in
recovering the incremental costs associated with adding new gas customers to
its system, and less in addressing lower customer usage due to conservation and
energy efficiency. The commission found that the partial agreement on
decoupling was not in the public interest and would likely result in shifting
costs between new and existing customers.

“Decoupling
is a flexible tool, but it is not an all-encompassing remedy for all
cost-recovery ills,” the commission stated.

Commissioner
Jay Balasbas dissented with his colleagues on the decoupling issue, arguing
that decoupling is a practical method of cost recovery that isn’t limited to
revenue recovery due to increased conservation or energy efficiency.

“The
2010 policy statement on decoupling clearly allows for the mechanism to help a
company recover lost revenues between general rate cases due to lower sales
from any source,” Commissioner Balasbas stated in his dissent. “Today’s
decision also sends the wrong signal about how the commission plans to use new
statutorily authorized flexible ratemaking tools obtained from the 2019
legislature.”

The
commission received four comments on NW Natural’s proposed rate increase, all
opposed.

In
December 2018, NW Natural filed a rate request with the commission for an $8.3
million, or 12.6%, overall rate increase. NW Natural’s last general rate
increase was in 2008.

In
May, NW Natural and commission energy staff, the Public Counsel Unit of the
Attorney General’s Office, the Alliance of Western Energy Consumers, and The
Energy Project reached the all-party partial settlement agreement. Commission
energy staff, NW Natural, the Alliance of Western Energy Consumers, and The Energy
Project signed the rejected decoupling agreement.

The UTC is the state agency that regulates private, investor-owned electric and natural gas utilities in Washington. It is the commission’s responsibility to ensure regulated companies provide safe and reliable service to customers at reasonable rates, while allowing them the opportunity to earn a fair profit.